Forensic Analysis

Our forensic analysis services are carried out by a team of investment research analysts with a specialist accounting background. They help investors review and assess:

Revenue recognition and other accounting policies, Quality of earnings, with a focus on potential financial manipulations, Corporate governance, with a focus on conflict of interest and non-independence, Identification of potential off-balance-sheet obligations, Key management remuneration in comparison with the company’s performance

The key questions that we strive to answer by reviewing historical and reported financials are:

• Are the financials sustainable or are they tainted by manipulation of accounting policy and/or critical assumptions or some form of financial choice that is contradictory to the company’s operations or capital management?

• Do remuneration structures reward short-term opportunism? Are governance and accountability structures impaired by conflicts and lack of independence?

Forensic analysis services involves a detailed review of five years of financial statements, focusing on overlooked data in terms of sustainability and quality of both earnings and cash flow, and health of balance sheets. A comprehensive accounting, financial, and corporate governance review involves an estimated 250 man-hours of specialist analysts’ time. We also provide bespoke accounting and analytical research. The forensic analytical research helps to set a solid base to extrapolate returns and understand the liability and governance profile and how management compensation is designed.

We also focus on red flags that help identify deteriorating fundamentals (or possible accounting manipulation). Common red flags around revenue include an increase in receivable days (sometimes hidden by factoring arrangements) combined with a significant increase in revenue but with a decline in organic revenue growth or changes to method of organic growth computation. Other red flags may be unusual fluctuations in one-off items that help smoothen out non-gaap earnings, decline in cash conversions, increase in leverage ratios, build-up in intangibles and goodwill that may need to be impaired, and any other material fluctuation in balances that are not adequately explained.